Sunday, August 2, 2009

In times like these, when we are in the throes of the worst recession since the last 60? years, Asterix is a good read.

Particularly the "Obelix & Co." issue. I am forced to marvel at the predictive power of Rene Goscinny & Albert Uderzo.

It serves as a very simple illustration of the whole genesis of this crisis. It also serves as a warning as to where we may head from here if the crisis doesn't get over.

The plot starts innocently enough, with Julius Caesar seeking a way to defeat the indomitable Gauls.

Enter Cauis Preposterus, a brash, confident young graduate of the Latin School of Economics - the archetypal Investment Banker of the Ancient World.

"Just how would you set about weakening the Gauls with their magical strength?" Caesar asks.

"Easy, O Caesar. Gold, the profit motive will enfeeble them and keep them busy. We must corrupt them" replies Preposterus.

Notice how Preposterus projects the idea of money as the motive that can enfeeble the Gauls, who are leading peaceful lives so far because they have thus far concerned themselves only with real assets - boars, fish, potions, Romans...

"You shall have unlimited credit. Get to work, Preposterous."

Sounds startlingly in sync with the actions taken by Alan Greenspan and the Federal Reserve - when in doubt, cut rates. Flood the banks with unlimited credit.

Preposterus leaves for the Gaulish village, meets Obelix and is all praise for his menhirs.

"How much is it?" He asks.

"I don't know, I usually swap them for something." says Obelix.

"I'll buy it. Two hundred sestertii." says Preposterus.

This represents another key component of the crisis - assets for which the fair value itself is not known. Or rather, assets which do not have any fair value.

This sets the cycle in motion. Preposterus tells Obelix that he will buy all the menhirs he can make. He also keeps increasing the price that he pays to Obelix for them.

Obelix has to produce more and more menhirs. He doesn't find the time to hunt boars anymore. He starts buying boars. More people start producing menhirs and they all need boars for which others start hunting.

Obelix has a lot of liquidity with him. Preposterus encourages him to boost his consumption, which Obelix did not really need to do.

"You want to start spending your sestertii. You need some smarter clothes. It's not the way for a man who's doing so well in menhirs to dress."

The result is that when the village pedlar comes with all sorts of consumption goods, Obelix buys all his stuff - just because he has the money to do so; Without the real need for buying them.

This of course, causes no end of jealousy. Everyone wants to have money. Obelix is like the first set of investors who made money in all the leveraged products & derivatives touted to them. The rest jumped in because they had to compete.

Everyone wants to make menhirs. Asterix gets Getafix to agree to provide magic potion to all the people in the village who want to make menhirs.

Getafix makes a very illuminating remark:

"The funny thing is, we still do not know what menhirs are for"

Bingo! An asset without intrinsic value, for which prices are continually going up due to unlimited liquidity. In pursuance of this, the real economy is being abandoned. The stage is set for the crisis.

Caesar starts getting worried. His Treasury is being drained and he has menhirs which he doesn't know what to do with.

Preposterus tells him to package the menhirs and sell them to the Romans. Something that will make the neighbours envious, even if its utterly useless. Like the US secondary mortgage market. Package the NINJA (No Income No Job No Assets) loans into AAA securities.

And then starts the greatest marketing campaign in the Ancient World.

Preposterus also manages to come out with derivatives on the menhirs - togas, jewellery, sundials and a do-it-yourself menhir kit.

"We have peace with the Gauls, and thanks to them we are going to make a real killing too!"

A slight problem surfaces. The Romans start making menhirs too. Caesar is forced to drastically reduce prices for the Gaulish menhirs. People are stuck with menhirs and they don't know what to do with them.

Prices start falling drastically. Phoenicians, Egyptians & Greeks also start flooding the market with menhirs. In the end people don't want menhirs even as free gifts.

Caesar accepts the losses and writes them down. But there's another problem...

A nervous Preposterus tells him "I wanted to keep the peace in Gaul, so before I left I gave orders for them to go on buying menhirs and raising the price."

Caesar is furious. He tells Preposterus to go and reverse the orders immediately.

Obelix has come back to his senses by then.

"I am bored and I have had enough now. Everyone has lots of sestertii. Everyone's the most influential man in the village."

The Romans stop buying the menhirs. The Gauls are at a loss as to what they can do. They have people working for them who have to be paid and they are no longer getting any money.

Obelix is initially blamed for the crisis, but Asterix makes the villagers see sense. They realise who is ultimately responsible for the crisis. They attack the Romans and all's well that ends well.

Considering that it was written in 1976, its eerily in line with what has largely happened in this Crisis. Remarkable.

It serves as a reminder of what happens when common sense is abandoned and people start paying more and more for assets which lack intrinsic value, driven by the lust for yield and profits, just because they have the liquidity. A bubble builds.